Latecomer upgrading in Taiwan

Abstract

Taiwan successfully upgraded its industries and entered into the high-tech industries in the last decades of the twentieth century. This essay examines how Taiwan achieved latecomer upgrading, by exploring the process by which its latecomer firms entered high-tech and modern services. It is found that the latecomer firms, called second movers here, entered high tech when the product just turned mature, and relied upon a different set of capabilities from those of the first movers in the advanced countries. The findings challenge prevalent orthodoxy, which includes open markets, increased foreign investment, small firms, and diminished state intervention. In reality, large domestically owned second movers rather than foreign enterprises or small networked firms have led Taiwan's entry into mature high tech. In the meantime, the government intervention has not been lessened, but has been adapting to the changing environment, in promoting high-tech industry and modern services.

Keywords:

• Taiwan
• latecomer
• industrial upgrading
• industrial policy
• second mover

JEL classifications:

• L20
• O14
• O25
• O30
• O53

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. This essay draws much upon, updates and extends Amsden and Chu (2003).

2. Hon Hai's name in China is Foxconn Technology Group. It is the main assembler of Apple's iPhone, iPad and other products.

3. Due to regulatory changes in 1999, the business groups changed the way they file financial reports. Thus, it rendered the more recent statistics incomparable to earlier series. Though it is believed that the influence of the business groups is still on the rise after 1998, the recent statistics are not presented here.

4. Assume that the scale of production of a national firm also depends on its outward foreign direct investment, while FDI may crowd out local capacity. If its total capacity rises due to that outward investment, then its overall scale will increase. If its foreign capacity substitutes for its domestic capacity, but unit costs are lower due to lower wages overseas, then the firm's profits will be higher and it can invest more in capacity, thereby lowering its unit costs further, thereby increasing potential demand and the prospects for investing overseas in additional capacity.

5. Without nationally owned and nationally controlled enterprises to shift selective operations abroad, a country itself cannot globalize. At most, the foreign-owned enterprises operating in one country can globalize further, to still other countries, but the total number of countries with their own multinational enterprises (one measure of which is the locus of their corporate headquarters) will remain the same.

6. The ratio may be biased if exchange rates are biased because inward FDI is usually measured in undeflated US dollars, whereas outward FDI is measured in a local undeflated currency converted into dollars.

7. For the literature on spillovers, see, for example, Aitken, Hanson, and Harrison (1997) and Blomstrom and Kokko (1998). For studies of FDI spurring economic development in Taiwan, see Schive (1990). For critical assessments of the role of foreign investment in economic development, see Cairncross (1962) and Amsden (2001), who argue that foreign investment usually arrives after growth momentum has started; it does not initiate industrial transformation, although it may accelerate it.

8. Samsung has been very successful, and was ranked seventh in the ranking of Top 100 Global Brands by Interbrand in 2014. http://www.bestglobalbrands.com/2014/ranking/.

Additional information

Notes on contributors

Wan-wen Chu

Wan-wen Chu is a research fellow at the Research Center for Humanities and Social Sciences, Academia Sinica in Taiwan, and an adjunct professor of economics at the National Taiwan University. She received the PhD degree in economics from Stanford University. She has published studies on East Asian economic development, and is the co-author of Beyond Late Development (2003, with Alice Amsden).